B.C. Industry Contributes $2 Billion

New report estimates impact of province's wine industry; taxes set to rise April 1

by Peter Mitham

Sources: The Economic Impact of the Wine and Grape Industry in Canada (Frank, Rimerman + Co. LLP, 2013); The Economic Impact of Washington State Wine and Grapes (Stonebridge Research Group LLC, 2012); The Economic Impact of the Wine and Wine Grape Industries on the Oregon Economy (Full Glass Research Inc., 2011).

Penticton, B.C., Canada—Spring has delivered a bouquet of optimism to British Columbia’s buoyant wine industry—and a reminder that the industry pays its share of taxes.

A report about the economic impact of the province’s wine industry suggests that it’s the very picture of health, with 212 wineries and 864 vineyards with more than 9,860 acres. The report pegs the industry’s economic impact at $2 billion, or $42 for every domestic bottle of wine produced. (All figures are reported in Canadian dollars; a Canadian dollar is worth about 97 cents U.S. today, though it has been trading at about par with the U.S. dollar during the past two years).

Mike Raffan, owner of Township 7 Vineyards & Winery, which has locations in both the Okanagan and the Fraser Valley, was on the board of the B.C. Wine Institute when the report was commissioned in 2011. He stepped down in 2012 after five years with the institute, but is thrilled—both as one of the initiators of the report as well as a wine producer—to see documentation of the industry’s impact.

Quantifying industry impact
The report is the first of its kind for the industry, and it gives substance to what many have suspected but haven’t had the numbers to support.

“We knew it was big, but we had no idea what that number was,” he told Wines & Vines. “We’ve never been able to quantify what we mean to the province.”

The report indicates that B.C. represents about a third of the Canadian wine industry, second only to Ontario in importance. Ontario’s wine industry has an impact of $3.3 billion, close to half the $6.8 billion impact of Canada’s wine industry as a whole.

British Columbia is also at the top when it comes to economic impact, with an average $42.07 impact per bottle versus the national average of $30.34. Ontario wines have an economic impact of $39.73 per bottle.

More than their fair share?
What stands out in the study, however, is just how highly taxed Canada’s wine industry is.

While there are varying measures of economic impact and taxes, the new study indicates that more than 10% of the economic impact of Canada’s industry is attributable to taxes.

The industry pays $879 million annually in direct taxes, with an additional $342 million contributed to government coffers through liquor board markups (government retailers dominate the wine business everywhere in Canada except Alberta, which privatized liquor sales and distribution in 1993).

Seen as a percentage of the industry’s total economic impact in Canada, taxes represent 12.9% nationally. The contribution is greatest in Quebec, where the relatively small wine industry sees 15% of its impact delivered through tax revenues. Producers in B.C. get off comparatively lightly, with just 11.1% of the economic impact of their wines attributable to taxes.

It’s a stark difference from neighboring Washington state (U.S.), where state and federal taxes account for just 6.3% of the economic impact of the state’s wine industry. The contribution of taxes is even less in sales-tax-free Oregon, where the industry delivers a puny 2.4% impact via taxes.

The numbers in Canada highlight the onerous burden of government on the industry, according to Jordan Bateman, B.C. director for the Canadian Taxpayers’ Federation.

“The wine industry pays all of the usual small business and corporate income taxes that every business pays, and then there’s all the liquor taxes attached to it as well,” he said. “There’s no doubt that when it comes to consumer products, wine is among the most taxed products in British Columbia.”

The sales tax payable on wine will rise from 7% to 10%. Designed to keep alcohol prices stable when the government changes how it levies sales taxes across the board, consumers won’t notice the change—but producers will.

“My $20 bottle of wine is less 12% taxes today, and on April 1 it’s going to be less 15%. So that tax hurts,” Raffan said. “It’s unlikely our industry is going to be able to pass that on.”

Potential for change
With a general election in British Columbia set for May 14, Bateman feels there&rsqu o;s an opportunity for parties to pledge to make changes.

“I think we will see political parties try to one-up each other on lowering taxes and regulatory burdens on wineries in an effort to try to win those swing ridings,” he said.

Generally, Bateman would like to see the province less reliant on so-called "sin taxes." The provincial government has made much of taxing fuel to reduce carbon emissions, on the basis that taxes can modify behavior and where business investment occurs.

“We (tax) things we want less of,” he said. “By that same standard, do we want less wine, less wine jobs, less wine industry, less wine tourism? Because the way we’re taxing it indicates that we do.”